Video: The compliance costs of the tax code

Ed MorrisseyPosted at 11:36 am on April 13, 2010

As Americans rush to tax accountants and preparation firms this week to finalize their tax returns, it’s a good time to consider the costs of compliance. The Center for Freedom and Prosperity offers a new entry in its Econ 101 video series that details these costs, not just on paying third parties for preparation but the systemic cost to the economy each year. What are these costs? Consider the 7.6 billion man-hours needed for federal tax compliance, which equates to 3.8 million full-time jobs. Tax compliance is one of the largest industries in the US.

“But I do my own taxes,” some will say, “and so it doesn’t cost me anything.” Want to bet? Every product and service consumers buy have these extra costs embedded in the retail price, and not just from the manufacturer, but also from the distributor and every other middleman. The total cost is around $340 billion per year, which is an anchor on economic growth and productivity — and that’s not even considering the fact that the tax code has gotten so complex that not even the IRS can accurately answer questions about it any longer.

It costs everyone, as the instructor explains:

What has this administration done to correct this? They will add thousands of more IRS employees to do to health care what they’ve already done to tax compliance.